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Tax Equity: Enhanced Valuations May Improve Outreach to Small Business Owners

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What GAO found

The Internal Revenue Service (IRS) does not collect data on race, ethnicity, or gender of taxpayers, including small business owners. This makes it difficult to determine whether different demographic groups use the tax provision differently. In the absence of these data, GAO may use data from other federal agencies, other taxpayer information, and certain analytical methods to identify or estimate the demographic characteristics of each taxpayer. it helped me to

GAO analyzed the use of the COVID-19 tax provisions. Specifically, we analyzed paid sick leave and family leave credits, payroll tax deferrals, and employee retention credits for employers and self-employed within a survey population of individually owned businesses subject to tax audits. . GAO collated data from various agencies to identify the sex of recorded business owners and the putative race and ethnicity of selected taxpayers using imputation methods. This method calculates the probability that a person with a given surname and place of residence identifies with a selected racial and ethnic group.

The GAO found limited use of the tax provisions by small businesses. Fewer than 7% of eligible small businesses in the survey population used employer and self-employed vacation credits or payroll tax deferrals. GAO also found estimated demographic differences in business ownership within the study population.for example

  • Self-employed leave credit. The GAO estimated that eligible Black- or African-American- and Hispanic-owned businesses were more likely to use these credits compared to Asian- and white-owned businesses.
  • Employee retention credit. The GAO found a slightly higher proportion of women-owned and Asian-owned businesses compared to other businesses filing employment tax returns.

Nearly all of the small business organizations interviewed by GAO identified a poor understanding of tax provisions as a potential source of limited use, especially among very small businesses. GAO’s analysis identified information and recordkeeping requirements as potential barriers leading to limited use. The IRS provided regulatory information to small businesses and evaluated outreach using several means, including informal feedback and compliance data. However, GAO has determined that these measures do not provide relevant and complete information.

Executive Order, January 2021, on advancing agencies that oversee racial equity and evaluating their programs and policies to determine whether they perpetuate systemic inequalities between groups. In addition, the Treasury Department’s Strategic Plan includes equity goals, including outreach and education for underserved communities. An enhanced evaluation of ongoing outreach efforts will help his IRS develop useful information for groups with different needs, such as very small businesses and owners with different demographic backgrounds. may be useful for Although the eligibility period for these COVID-19 provisions has passed, assessing outreach may also improve his IRS readiness to communicate tax credit information during future emergencies.

Why GAO did this study

The COVID-19 pandemic has wreaked havoc on the US economy. Congress enacted tax provisions in pandemic relief efforts to help businesses. However, little is known about the impact of these tax policies on the demographic background of employers.

The CARES Act includes provisions for GAO to report on ongoing COVID-19 surveillance and surveillance efforts. As part of this oversight, the GAO was also asked to consider the impact of selected tax policies on small businesses by race, ethnicity and gender.

This report estimates, among other things, the use of selected COVID-19 tax provisions by race, ethnicity and gender of small business owners. It also assesses potential barriers for small businesses to access his COVID-19 tax provisions.

GAO analyzed data from the IRS, the U.S. Census Bureau, and the Social Security Administration. Literature review of analytical methods. We interviewed representatives of small business organizations and officials of government agencies.

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